Series A Preparation: The Cap Table & Legal Readiness Blueprint

## Series A Preparation: The Cap Table and Legal Readiness Blueprint

We've watched dozens of Series A conversations collapse—not because the business wasn't strong, but because the cap table was a mess. One founder spent six weeks in due diligence only to discover an undocumented advisor equity agreement that required unanimous consent to modify. Another had three SAFEs with conflicting conversion terms written by different lawyers in different states.

These aren't edge cases. They're symptoms of founders treating capitalization structure and legal documentation as afterthoughts.

In our work with Series A startups, we've seen that successful **series a preparation** requires obsessive attention to the structural foundation before a single investor meeting. This isn't the sexy part of fundraising—it's the unglamorous work that determines whether your round actually closes.

We're going to walk through the **series a checklist** most founders ignore: the cap table audit, legal documentation gaps, and structural cleanup that makes you fundable.

## Why Your Cap Table Is Your Due Diligence Bottleneck

Investors don't just want to see your cap table. They want to see a *clean, auditable, conflict-free* cap table that tells a consistent story from day one.

Here's what we mean: when due diligence begins, investors will:

- Reconcile every equity grant with option pool documents
- Cross-check vesting schedules against termination agreements
- Verify that all founders agree on their ownership percentages
- Review whether equity was issued below fair market value (FMV)
- Confirm that option exercise prices comply with IRS guidelines
- Identify all convertible instruments and their conversion mechanics

If your cap table has contradictions—even small ones—the lawyer's meter starts running, the process slows, and uncertainty creates negotiating leverage for investors.

### The Cap Table Audit: Start Here

Before you prepare pitch materials, audit your cap table backward:

1. **Start with current ownership**: What do your company records show as current shareholder percentages and option pools?

2. **List all equity events**: Every founder grant, employee option grant, convertible note, SAFE, warrant, or future equity commitment. Include dates, quantities, and terms.

3. **Identify documentation**: For each event, do you have signed stock option agreements, board resolutions, cap table certificates, or convertible documents? (Spoiler: most founders don't.)

4. **Check vesting status**: Which grants are fully vested? Which have acceleration clauses? What's the original vesting schedule (typically 4-year vesting with 1-year cliff)?

5. **Flag conflicts**: Do you have undocumented side letters with early employees? Verbal agreements? Promise equity to advisors you never formalized?

We worked with a hardware startup that had accepted two SAFEs from seed investors but never documented what happened to those SAFEs when they issued a priced round. The original SAFE terms had a pro-rata participation right that became a problem during Series A valuation negotiation. A six-hour discovery in month three of due diligence that could have been resolved in week one of preparation.

### Common Cap Table Landmines

**Advisor equity without documentation**: You promised someone equity. They took the meeting. Did you ever actually grant it? Is it a SAFE, an option, or a handshake? Investors will ask. Have an answer.

**Unvested founder stock**: If you have founders with unvested equity, Series A investors will require repurchase agreements or acceleration policies. This needs to be documented before fundraising, not negotiated during due diligence.

**Non-standard SAFE terms**: [SAFE vs Convertible Notes: The Cap Table Impact Most Founders Miss](/blog/safe-vs-convertible-notes-the-cap-table-impact-most-founders-miss/) covers this, but the short version: every seed SAFE with custom conversion caps or MFN clauses will be examined closely. Standardized SAFEs make this easier.

**Option pool size disputes**: Did you reserve 10% or 20% for employees? Is that calculation before or after Series A dilution? Investors want clarity on post-investment pool allocation.

**Founder equity splits with documentation gaps**: Three founders, but only one employment agreement? This matters. Document the agreement so disputes don't emerge during fundraising stress.

## Legal Documentation: The Structural Foundation

We're not lawyers—we work alongside them—but every Series A startup we've prepared has had documentation gaps that would have created friction during due diligence.

### The Minimum Legal Documentation Bundle

Before you pitch Series A investors, have these documents prepared, signed, and organized:

**Formation documents**:
- Certificate of incorporation and bylaws (current version)
- Cap table certificate (signed by CEO)
- Board resolutions approving equity grants, SAFEs, convertible notes

**Equity documents**:
- Signed stock option plans (with latest amendments)
- Stock option agreements for all optionholders
- Fully executed SAFEs or convertible notes from seed funding
- Any board seat agreements or investor side letters
- Employee stock purchase agreements (if applicable)

**Material agreements**:
- Employment/offer letters for all founders
- Confidentiality agreements for early employees
- IP assignment documents (proving the company owns what it thinks it owns)
- Advisor agreements (if you've granted equity)

**Capitalization records**:
- Complete equity ledger with grant dates, quantities, exercise prices, vesting schedules
- Record of all option exercises
- Schedule of all options currently outstanding

**Founder-specific**:
- Founder vesting agreements (protecting investors if a founder leaves)
- Stockholders' agreement (if you have preferred shareholders)
- Drag-along and tag-along rights documentation

This isn't theoretical. We had a Series A candidate that couldn't close because the original co-founder (now departed) never signed the stock option agreement he thought he'd executed. Proving he had vested equity required legal work that delayed closing by three weeks.

## The FMV and 409A Valuation Reality

Investors will scrutinize the price at which you issued options to employees and advisors. This is called fair market value (FMV).

If you granted options significantly below FMV, the IRS can argue you issued compensatory equity at artificially low prices, creating tax complications for your employees. For Series A companies, this often triggers a 409A valuation requirement.

### How to Handle This Now

**Get a 409A valuation before your Series A**: This isn't required, but it's strategic. A third-party 409A establishes the FMV of your common stock. Investors will ask about it anyway—having one removes ambiguity.

Cost: $1,500–$3,000. Timeline: 2–3 weeks.

**Document your option pricing rationale**: If you granted options at $0.10/share and your Series A is at $2/share, that's fine—that's how startup equity works. But document why you chose that price (industry comparables, advisory board input, auditor guidance).

**Be proactive about option pool expansion**: Your Series A investors will expect to allocate 10–20% of the fully diluted cap table to an option pool for new hires. If your current pool is depleted, negotiate this before you finalize valuation.

This ties directly to [SaaS Unit Economics: The CAC/LTV Trap Most Founders Miss](/blog/saas-unit-economics-the-cacltv-trap-most-founders-miss/), because undisclosed equity costs affect your unit economics—one more reason investors want clarity.

## IP Ownership: The Ownership Chain

Investors will ask: does your company own everything it thinks it owns?

This is simpler than it sounds but critical. Every product, technology, brand, or process that's core to your business needs to be demonstrably owned by the company, not the founder or a contractor.

### The IP Checklist

**Founder IP assignment**: Have all founders signed agreements assigning pre-company IP to the company? (This protects the company and the founders.)

**Contractor/consultant IP**: Did you hire developers, designers, or advisors pre-launch? Did they sign IP assignment agreements? Verbal handshakes don't count.

**Open source licensing**: Are you using open source libraries? Document them. Investors don't want GPL surprises.

**Trademark/domain ownership**: Is the company the registered owner of the domain, trademark, and brand assets? Or are they in a founder's name?

One founder we worked with discovered (during Series A diligence) that his core technology was developed while employed at a previous company, and the IP assignment language was ambiguous. The due diligence review required three weeks of negotiation to get a retroactive release from the previous employer. This could have been solved in the seed stage with proper documentation.

## The Regulatory and Compliance Layer

Before you raise Series A, address these compliance questions:

**Stock option plan**: Do you have a board-approved equity incentive plan? (You'll need one.)

**Cap table accuracy**: Is your cap table registered with your secretary of state consistent with your internal records?

**State corporate law**: Are you Delaware incorporated? (Most Series A investors will want this.) If not, have you considered reincorporating?

**Tax compliance**: Have you filed all required filings for option plans, SAFEs, and convertible notes? Are payroll tax filings current?

**Related-party transactions**: Have you disclosed all transactions with founders, employees, or investors? (Board should approve these.)

We had a Series A candidate operating in California that hadn't properly documented related-party transactions between the founder and the company. The investor's lawyer flagged it as a governance risk. A 30-minute board resolution addressing it would have prevented the issue.

## The Series A Preparation Timeline: Cap Table Work

Here's how we structure this preparation:

**Months 1-2 (before you pitch)**: Cap table audit, gap identification, and legal documentation assembly. Get lawyers involved to address conflicts.

**Month 2**: 409A valuation, FMV documentation, option pool adjustment (if needed).

**Month 3 (pitch-ready)**: Clean cap table, updated board resolutions, IP assignment documentation, and a private legal memo confirming no structural issues.

Most founders compress this into two weeks before their Series A closes. Don't.

## Common Mistakes We See

**1. Overstuffing the option pool**: Founders create an oversized pool thinking it helps with hiring. It dilutes everyone's ownership and looks like poor planning to investors.

**2. Undocumented advisor equity**: You want to defer the conversation. Investors won't. Document it now.

**3. Assuming SAFEs are simple**: They're not. Different SAFEs with different terms create complexity. Use standardized terms.

**4. Founder vesting ambiguity**: If one founder leaves, can the remaining founders buy back equity at FMV? Document this.

**5. Missing cap table documentation**: Spreadsheets aren't enough. You need signed agreements backing up every line item.

We've seen each of these delay Series A closings by weeks.

## What Your Series A Investors Will Actually Verify

When due diligence begins, expect investors to:

- Cross-check cap table against board resolutions and stock ledgers
- Verify option exercise prices against 409A or FMV documentation
- Confirm vesting schedules match employee agreements
- Review SAFE and convertible note terms for conflicts
- Assess IP ownership documentation
- Identify any governance gaps (missing board approvals, related-party issues)

If you've done the work outlined here, due diligence becomes a verification exercise, not a discovery project. That's the difference between a two-week diligence process and a two-month one.

## Bringing It Together: Your Series A Readiness Score

You're ready for Series A cap table discussions if:

- ✅ You have a documented cap table audit with zero conflicts
- ✅ All equity grants (founder, employee, advisor) are signed and documented
- ✅ SAFE/convertible terms are standardized and clearly documented
- ✅ Founder vesting is formalized in writing
- ✅ IP assignments are documented and complete
- ✅ You have a 409A valuation or documented FMV rationale
- ✅ Your option pool is sized appropriately post-Series A
- ✅ All governance (board resolutions, approvals) is current

If you're missing more than two of these, you're not Series A-ready from a structural perspective.

## The Financial Operations Connection

Cap table cleanup isn't just legal—it's financial. When you [understand your CAC and LTV](/blog/how-to-calculate-and-improve-customer-acquisition-cost-cac/), you need to account for equity costs in your unit economics. A clean cap table lets you do this accurately. When you're modeling [burn rate and runway](/blog/burn-rate-vs-runway-the-math-most-founders-get-wrong/), undisclosed future dilution throws everything off.

Series A preparation, ultimately, is about operational and financial clarity.

## Next Steps: Getting Your Structural House in Order

If you're planning a Series A in the next 6-12 months, start now:

1. **Audit your cap table**: List every equity event. Identify documentation gaps.
2. **Consult a startup lawyer**: A 2-3 hour consultation to identify risk areas costs $1,000–$2,000 and can save you weeks of diligence.
3. **Get a 409A valuation**: Do this 3-4 months before fundraising conversations.
4. **Assemble documentation**: Board resolutions, equity agreements, IP assignments—organize these in a clean folder.
5. **Create a cap table summary**: One-page view of ownership, vesting, options outstanding, and option pool allocation.

At Inflection CFO, we help founders prepare for Series A by auditing not just metrics but the entire financial and structural foundation. We've worked with Series A companies to clean up cap tables, resolve conflicts, and prepare documentation that moves diligence forward—not backward.

If you're six months from a Series A and want to know whether your cap table and legal structure are investor-ready, [let's do a free financial audit](/). We'll identify the gaps and help you prioritize the work that matters.